Glencore's interest in Bunge fueled speculation that world rain trading is ripe for consolidation.

By Reuters
May 24, 2017
May 24, 2017

U.S. grains trader Bunge said on Tuesday it was not in talks with Swiss mining and commodities group Glencore, after the latter said it had made an informal approach to discuss “a possible consensual business combination.”

Both statements were triggered by a Wall Street Journal story that stated that Glencore glncy had made a takeover approach to Bunge bg . Bunge shares ended trading in New York up 16.6% at $81.70, giving the company a market capitalization of $11.4 billion, on investor expectations of a possible deal.

However, Bunge subsequently said it was not engaged in business combination discussions with either Glencore or Glencore Agriculture, a joint venture owned by Glencore and two Canadian pension funds.

Glencore had said in its statement earlier that “discussions may or may not materialize and there is no certainty that any transaction will occur.”

In a sign of its limited appetite to negotiate a sale to Glencore, Bunge said it was “committed to continuing to execute its global agri-foods strategy and pursuing opportunities for driving growth and value creation.”

Prior talks between Glencore and Bunge focused on a partnership in North America rather than the sale of Bunge, according to people familiar with the discussions, who requested anonymity to disclose them. Glencore also expressed interest in an acquisition of Bunge, however Bunge did not wish to pursue it, one of the sources added.

Glencore’s interest in Bunge fueled ongoing speculation that, after a string of poor results, the world’s big grain trading houses are ripe for a wave of consolidation similar to the mergers and acquisitions in the farm chemicals and seed industries.

Bunge shares were down 3.4% at $78.95 in after-hours trading in New York on Bunge’s statement.

Large grain traders have struggled in recent years as a global oversupply and thin trading margins have squeezed their core commodity trading operations, including those of Bunge and rivals Archer Daniels Midland adm , Cargill, and Louis Dreyfus.

The companies, collectively known as the ABCDs of global grain trading, are also facing stiffer competition from players such as China’s COFCO, which recently scooped up Noble Agri and Nidera, and Japan’s Marubeni maruy , which bought U.S. grain handler Gavilon in 2012.

Merger expectations have been bubbling in the sector for months as commodities prices remain stubbornly low. A series of bumper grain and soybean harvests in the United States and South America also mean there is little chance of a supply disruption that global grain traders could profit from.

Bunge Chief Executive Soren Schroder said earlier this month that the sector was ripe for consolidation and that Bunge was prepared to take the lead in any dealmaking. He did not specify whether Bunge would be a buyer or a seller.

If Glencore and Bunge were to form a partnership, it could transform Glencore into a major U.S. agricultural company. Glencore pursued Louis Dreyfus’ grains business in recent years, but failed to strike a deal.

The company bolstered its Canadian operations with a $6 billion deal for grain handler Viterra in 2012, but spun off its grains business in 2015 and later divested 49% of Glencore Agri to the Canada Pension Plan Investment Board (CPPIB) and British Columbia Investment Management Corp (bcIMC) for more than $3.1 billion.

CPPIB and bcIMC declined to comment about a possible partnership with Bunge.

Ken Morrison, a veteran grain trader who writes a commodity trading newsletter, said he bought a “meaningful” number of Bunge shares when prices dove after an earnings miss earlier this month. He sold about half of his shares on Tuesday.

“I think that the chances of a deal coming together at a value that is acceptable to Bunge is less than 50/50,” he said.

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